Storm Fund

Hinging On

Irs Move

`Mixed Signals' Sent

On Tax-exempt Status

The linchpin of the state's hurricane insurance reforms enacted last fall - the Florida Hurricane Catastrophe Fund - may be in danger of being pulled by the Internal Revenue Service.

Earlier this week, Insurance Commissioner Tom Gallagher confirmed that early indications from IRS officials concerning the state's application for tax-exempt status for the so-called "cat fund" did not seem promising.

"It's a high-stakes poker game," said Jim Bax, chairman of the Florida Property and Casualty Joint Underwriting Association, Ash Williams Jr., who runs the state Board of Administration that oversees the hurricane fund, and Rep. John Cosgrove, D-Miami, who helped design the fund last fall, both denied that the application was in trouble.

But Bax and others close to the insurance industry said the decision over the tax status of the fund had moved to the highest levels of the IRS.

"The IRS is being very careful because of the precedent it could set in states other than Florida," said Hal Mullis, an attorney with Trenam & Simmons in Tampa, who is working with the state's joint underwriting associations. "It is being reviewed at very high levels within the IRS and is receiving very careful attention."

Mullis said the early indicators from the IRS in the matter were "not too encouraging," but that lately the signs were becoming more positive.

Florida officials expect a ruling sometime within the next 10 to 14 days, Mullis said.

What difference would a negative ruling make to consumers?

Plenty, according to Bill Sirola, a spokesman at State Farm Insurance, Florida's largest homeowners insurer.

If the fund is not granted tax-exempt status, more of the cost of filling the fund is going to be passed on to consumers, he said.

During the special session of the Legislature in November, lawmakers created the Florida Hurricane Catastrophe Fund as one way of shoring up the state's eroding property insurance market.

Legislators were under tremendous pressure to come up with a safety net to protect insurers from bottomless-pit losses in the event of another hurricane like Andrew, or worse.

Allstate Insurance backed off its plan to drop 300,000 of its policyholders statewide because the catastrophe fund was approved.

The plan that the Legislature created calls for the state to order every property and casualty insurer in the state to pay a certain amount into the fund, based on the amount of hurricane risk each company carries.

In the event a bad hurricane hits and a company such as Allstate suffers extensive losses, the law will permit it to tap the fund for 75 percent of its remaining losses after it has paid out twice what it collected in premiums the previous year.

Recently, the state Board of Administration approved ordering insurers to pay $523.4 million into the fund - an amount that includes a factor for taxes.

Williams said it was safe to assume that at least some of this cost would be passed on to policyholders.

State regulators granted many insurers last year rate increases averaging 20 percent to 30 percent statewide, rate increases that could climb near 50 percent for South Floridians near the ocean.

Depending on how much of the premium a company collects is already earmarked for paying for catastrophic events such as hurricanes, more increases may be in store for consumers.